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Vertical integration, disintegration and ability to export

Vertical integration, disintegration and ability to export

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Vertical integration, disintegration and ability to export

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  1. Vertical integration, disintegration and ability to export Gianpaolo Rossini and Laura Vici Department of Economics, University of Bologna Gianpaolo Rossini University of Bologna

  2. Introduction • Firms' heterogeneities: Least productive firms do not exit in an imperfectly competitive environment -> make lower profits and confine to the domestic market. Gianpaolo Rossini University of Bologna

  3. Where do differential performances come from? • Technology and process innovating R&D • Market strategies and other forms of R&D • Internal (vertical) organization mode Gianpaolo Rossini University of Bologna

  4. Focus of the paper • Internal (vertical) organization of exporting firms. Related theoretical (Helpman, 2006) and applied (Rossini and Ricciardi, 2005) contributions. • LITERATURE: More efficient firms <-> more vertically integrated on both a domestic and a cross-border basis (Antras and Helpman, 2004; Grossman and Helpman, 2002; Buehler and Schmutzler, 2003) Gianpaolo Rossini University of Bologna

  5. Main question • Is exporting activity going to affect the degree of vertical integration (VI)? • Or, are more vertically integrated firms exporting more than vertically disintegrated enterprises? Gianpaolo Rossini University of Bologna

  6. Main results We provide a link between literature stating that only more productive firms export and literature stating that more productive firms are more vertically integrated. FINDING: the more firms export the more VI they are. Why? A matter of size, since larger firms are more VI. Gianpaolo Rossini University of Bologna

  7. Theoretical set up • Comparison between VI and VD crossborder Cournot duopolies, with differentiation. • VD linear pricing: most common practice among input producers. • 2-3 stages: VI –VD, Ex - no ex, vertical interaction between U and D Gianpaolo Rossini University of Bologna

  8. NOVELTY Payoffs: profits per unit of capital invested. Shareholders aim at the maximum profit per unit of capital. Gianpaolo Rossini University of Bologna

  9. Scenario 1 Small firm versus large firm, home bias • VD subgame: (vertical restraint as in Rossini, 2007). The small firm never exports, neither in the game equilibrium nor in subgame: VI firms (and also VD) may export only if they are large Gianpaolo Rossini University of Bologna

  10. Scenario 2 Small firm versus large firm, low Home Bias • The large firm goes VI and exports, the small firm goes VI but does not export. • In the VI and VD subgames the large firm exports. The small does not. Gianpaolo Rossini University of Bologna

  11. Econometric tests • Dependent variable: level of VI ∈ [0,1]. • Two specifications: • size, productivity and exports as explanatory variables • includes R&D expenditure. Gianpaolo Rossini University of Bologna

  12. Gianpaolo Rossini University of Bologna

  13. Conclusion • Export activity seems to increase VI mostly among large firms. Gianpaolo Rossini University of Bologna